United States District Court, S.D. New York
October 13, 2004.
MARK BOYCE, Plaintiff,
SOUNDVIEW TECHNOLOGY GROUP, INC. (FORMERLY KNOWN AS WIT CAPITAL GROUP INC.), Defendant.
The opinion of the court was delivered by: HAROLD BAER, JR., District Judge
OPINION & ORDER
On February 20, 1997, Plaintiff, Marc Boyce ("Boyce"), and
Defendant, Soundview Technology Group, Inc. ("Soundview"), signed
a consulting agreement that granted Boyce the right to purchase
800,000 shares of Wit Capital Group Inc. ("Wit") common stock at
a price of $1 per share. (Tr. 833:1 6).*fn1 The consulting
agreement expressly stated that "the stock option grant may be
exercised within one year if my [Boyce] employment services
and/or consulting relationship with the company terminates
completely." (Tr. 833:6 10). The consulting agreement also
stated that "a copy of the incentive stock option agreement will
be provided after signing the final agreement and the
term/expiration date of the option grant will be the standard 10
years." (Tr. 833:10 13).
Six months later, in October 1997, Boyce received an internal
Wit memorandum enclosing a copy of a Wit Capital incentive stock
option agreement dated February 10, 1997 bearing Boyce's name.
The option agreement provided that "in the event that Boyce was
terminated for cause or if Boyce terminated his relationship with
Wit for any reason whatsoever . . . the option may only be
exercised within one month after such termination." (Tr. 833:13
21). Boyce's employment terminated in May 1998.
On April 5, 1999, Soundview denied Boyce's attempt to exercise
his stock options. (Tr. 837:24 25). The focus of the trial was
to determine whether "the consulting agreement is the only
enforceable agreement, or instead, the incentive stock option
agreement controlled the timing of when Boyce could exercise his option." (Tr. 833:24 834:2). A
jury trial before me commenced on July 19, 2004 and concluded on
July 23, 2004. The jury found Soundview's refusal to allow Boyce
to exercise his options on April 5, 1999 was a breach of contract
and awarded Boyce $400,000. (Tr. 850:8 851:8).
On July 28, 2004, Boyce filed this motion for a new trial,
pursuant to Rule 59 of the Federal Rules of Civil Procedure,
limited to the issue of damages. In sum, Boyce argues that he is
entitled to a new trial, limited to the issue of damages,
because: (A) the Court precluded plaintiff's forward looking
evidence and improperly charged the jury regarding damages; (B)
the Court's "Wrongdoer Rule" instruction was legally incorrect;
and, (C) the Court improperly excluded evidence dated after April
II. STANDARD OF REVIEW
The decision to grant a new trial is unwarranted "unless the
trial court is convinced that the jury has reached a seriously
erroneous result or that the verdict is a miscarriage of
justice." Munafo v. Metro. Transp. Auth., 03 Civ. 7831, 2004
WL 1878753, at *5 (2d Cir. Aug. 24, 2004) (emphasis added). A
motion for a new trial should only be granted in special
circumstances; for example, when the jury's verdict is
"egregious." DLC Mgt. Corp. v. Town of Hyde Park, 163 F.3d 124,
134 (2d Cir. 1998).
A. The Court Precluded Plaintiff's Forward Looking Evidence or
Improperly Charged the Jury Regarding Damages
It is uncontested by the parties involved in this case that any
damages for a breach of contract should put the non-breaching
party in the same economic position he would have been, but for
the alleged breach. (Tr. 840:8 19). It is also uncontested by
the parties that, in a breach of contract action, damages should
be calculated from the date of the breach, not some subsequent
time, and the parties agreed that any damages be determined as of
April 5, 1999. Boyce Opening Br. at 1, Boyce v. Soundview, 03
Civ. 2159 (Jul. 28, 2004); Soundview Br. at 5, Boyce v.
Soundview, 03 Civ. 2159 (Aug. 25, 2004).
Boyce, among other things, contests the Court's (1) refusal to
allow "forward looking" evidence and (2) refusal to follow Sharma v. Skaarup Ship Mgmt.
Corp., 916 F.2d 820 (2d Cir. 1990), and instruct the jury that
damage awards should be based upon what knowledgeable investors
anticipated the future conditions and performance would be at the
time of the breach.
1. Forward Looking Evidence
The Second Circuit has repeatedly rejected Boyce's desire to
engage in a hypothetical damage assessment of potential profits
favoring, instead, more reliable established facts. In Lucente
v. Int'l Bus. Mach. Corp., 310 F.3d 243 (2d Cir. 2002), for
example, the Second Circuit held that a district court "ignored
binding precedent" and rejected the district court's decision "to
employ a conversion measure of damages in breach of contract
cases," opting in favor of calculating damages at the time of the
breach. Id. at 262-263. Again, in Oscar Gruss & Son, Inc. v.
Hollander, 337 F.3d 196 (2d Cir. 2003), the Second Circuit held
that "damages for breach of contract should put the plaintiff in
the same economic position he would have occupied had the
breaching party performed the contract" and "flatly rejected
under New York law the use of the conversion measure of damages
in a breach of contract case." Id. at 196-197.
Following Lucente and Oscar Gruss, the Court drew a bright
line, excluding all evidence of the value of the stock dated
after April 5, 1999 because, as the Second Circuit unequivocally
stated, "New York courts have rejected awards based on what the
actual economic conditions and performance were in light of
hindsight." Oscar Gruss, 337 F.3d at 196 (citations omitted).
Estimates as to the potential value of a stock or predictions as
to future stock prices are notoriously unreliable. Admitting
market projections of Wit shares in the months following the
breach as evidence would be tantamount to relying on the Farmer's
Almanac predictions of rain for the upcoming harvest.
Accordingly, Boyce's motion for a new trial on this ground is
2. Improper Jury Charge: "Anticipated Future Conditions"
At trial, the Court instructed the jury that:
Fair market value of an asset such as stock is the
price at which the property would change hands
between a willing buyer and a willing seller, neither
being under any compulsion to buy or sell and both
having reasonable knowledge of the relevant facts.
You have heard a lot of testimony and argument on
this issue, including Dr. Ma's opinion. Keep in mind that generally, the sale price for the same
asset, sold close to the time to the asset being
valued (here April 5, 1999), if it is the result of
arm's length negotiations, is the best evidence of
fair market value.
(Tr. 841:6 15).
While New York law provides that the common measure of damages
in breach of contract cases to be "the difference between the
contract price and the fair market value of the item or property
being sold at the time of the breach," Sharma v. Skaarup Ship
Mgmt. Corp., 916 F.2d 820, 825 (2d Cir. 1990), determining the
"fair market value" is anything but simple. The Supreme Court has
defined the term, "fair market value," as the price that a
willing buyer would pay a willing seller in a fair transaction.
See United States v. Cartwright, 411 U.S. 546, 551 (1973) ("The
fair market value is the price at which the property would change
hands between a willing buyer and a willing seller, neither being
under any compulsion to buy or to sell and both having reasonable
knowledge of the relevant fact."); Schonfeld v. Hilliard,
218 F.3d 164, 178 (2d Cir. 2000) (noting that New York State courts
have recognized the Cartwright standard). In Oscar Gruss, the
Second Circuit limited the scope of "fair market" damage
assessment in breach of contract cases to the price at the time
of breach. 337 F.3d at 196.
Here, I charged the jury as to how to determine "fair market
value." The "hypothetical market standard" was charged to the
jury because, on or about the date of the breach of the contract,
the shares were in a private company and the stock was not
actively traded on any exchange. The lack of a traditional market
required the jury to determine what "a hypothetical willing
buyer, being under no compulsion to sell and having reasonable
knowledge of the relevant facts, would pay for the asset at
issue." Schonfeld, 218 F.3d at 178 (collecting exemplary
Boyce's motion for a new trial on this ground must be denied.
B. Improper Jury Charge: The "Wrongdoer Rule"
Boyce further alleges that the Court's charge regarding the
"Wrongdoer Rule" was legally incorrect. Boyce argues that after
adequately demonstrating that Soundview breached the contract and
establishing $400,000 in damages, the Court's incorrect jury
instruction misstated the essence of Schonfeld,
218 F.3d at 182, and Indu Craft, Inc. v. Bank of Baroda, 47 F.3d 490, 496
(2d Cir. 1995), as the burden of uncertainty was improperly
shouldered by Boyce. The issue was not the existence of damages,
only the amount and, therefore, Boyce should not have been
required to demonstrate "a reasonable estimate of the amount of plaintiff's
damages, and defendant's wrongdoer [sic] is to blame for
plaintiff's inability to offer more precise evidence." (Tr.
Although damages do not have to be proven with mathematical
precision, before a party can recover, the amount of damages must
be demonstrated with "reasonable certainty." Schonfeld,
218 F.3d at 172. The "reasonable certainty" requirement demands that
the plaintiff demonstrate more than "merely speculative, possible
or imaginary" damages. Id. at 172. In order to shift the
burden, the damages must be "capable of measurement based upon
known reliable factors without undue speculation." Id. at 172.
When the existence of damage is certain, but the amount cannot be
ascertained with "reasonable certainty," the burden of
establishing "reasonable certainty" rests with the plaintiff.
Contemporary Mission, Inc. v. Famous Music Corp., 557 F.2d 918,
926 (2d Cir. 1977). When, however, a plaintiff has demonstrated
the amount of damages with reasonable certainty, "the wrongdoer
must shoulder the burden of the uncertainty regarding the amount
of damages." Indu Craft, 47 F.3d at 496.
The charge given by the Court correctly characterized the
"Wrongdoer Rule" outlined in Schonfeld and Indu Craft:
First, this wrongdoer rule is a rule as to [the]
alleged burden of proof and it has to do with a
shifting of the burden of proof to the defendant on
the issue of damages. And the rule states that the
alleged wrongdoer, the defendant, most frequently the
defendant, may not object to the plaintiff's
reasonable estimate of the amount of damages when it
is supported by evidence because that estimate was
not based on more accurate data which the law goes on
to say must be shown to say as a consequence of the
wrongdoer's misconduct making that additional
evidence unavailable. So for this rule to be
applicable and the burden to prove damage to shift to
the defendant, you must find both the plaintiff
offered a reasonable estimate of the amount of
plaintiff's damages, and defendant's wrongdoer [sic]
is to blame for plaintiff's inability to offer more
(Tr. 842:2 16)
The "reasonable estimate" portion of the jury charge
encapsulates the requirement articulated in Schonfeld and Indu
Craft. A charge to the jury which permitted a damage assessment
based upon "a multitude of assumptions" that require "speculation
and conjecture" would fail to provide the requisite certainty. Schonfeld, 218 F.3d at 173.
Absent such language, the charge to the jury would enable Boyce
to prove the existence of damages without requiring any
reasonable certainty as to the amount, entitling him to a free
pass once he proves only the existence of damages.
Boyce's motion for a new trial based upon the Court's failure
to charge the correct. "Wrongdoer Rule" is denied.
C. Evidence Preclusion
Boyce, lastly, argues that the Court's decision to preclude
post-April 5, 1999 evidence to demonstrate the true situation as
of April 5 was erroneous as a matter of law. Boyce contends the
Court: (1) misinterpreted relevant case law regarding the
introduction of post-breach evidence and incorrectly excluded (2)
the testimony of Mr. Antoon and (3) portions of the post-breach
1. Evidence Subsequent to the Date of Breach
Boyce argues that the Court's decision to excluded evidence
that would demonstrate that had Soundview performed, Boyce, as a
"reasonably knowledgeable investor, would have held his stock
until he would have been able to sell the stock on the public
market" was incorrect as a matter of law.
Boyce points to three district court decisions in support of
this proposition. First, Boyce cites to Phansalkar v. Andersen
Weinroth & Co., L.P., 00 CIV. 7872, 2002 WL 1402297 (S.D.N.Y.
Jun. 26, 2002). Boyce argues that Phansalkar supports the
proposition that a jury may properly consider "what would most
probably have occurred if the defendant performed." Id., 2002
WL 1402297, at *21. Second, Boyce refers to Madison Fund v.
Charter Co., 427 F.Supp. 597, 608 (S.D.N.Y. 1977). In
calculating damages due for a breach of contract involving
privately placed shares, the Madison court resolved
uncertainties as to when the purchaser of such privately placed
shares would have sold them in favor of the purchaser, not in
favor of issuer. Id. at 608-609. Third, Boyce points to
Commonwealth Assoc. v. Palomar Med. Tech., Inc. 982 F.Supp. 205
(S.D.N.Y. 1997). Again, Boyce argues for including in a damage
assessment profits lost by virtue of defendants' failure to honor
Following the district court's decision in Phansalkar, the
Second Circuit decided two cases on the issue of loss profit
calculations and evidence in breach of contract cases. First, the
Second Circuit implicitly overturned the conversion calculation for
damages in a breach of contract case enunciated in Phansalkar
and Madison Fund, expressly requiring damages to be calculated
from the time of breach. Lucente v. Int'l Bus. Mach. Corp.,
310 F.3d 243, 263 (2d Cir. 2002) (rejecting under New York law the
use of the conversion measure of damages in a breach of contract
case); Oscar Gruss & Son, Inc. v. Hollander, 337 F.3d 186, 196
(2d Cir. 2003) (agreeing that damages should be determined as of
the date of the breach). Second, the Second Circuit's decision in
Oscar Gruss limited the effect of Palomar. In Palomar, the
breach of contract and plaintiff's knowledge of the breach
occurred independently. Id. at 197. The defendant in Palomar
continued to pay the financial consultation costs to the
plaintiff and, consequently, the plaintiff was justified in
assuming that the defendant would honor its obligation. Id. at
197. In Oscar Gruss, however, the relevant breach occurred when
the defendant failed to deliver the warrants. Id. at 197.
Unlike the plaintiff in Palomar, the plaintiff in Oscar Gruss
knew immediately that defendant had breached. Id. at 198. The
Oscar Gruss damage assessment, articulated a second tier of
analysis. Once a breach of contract was established, the damage
calculation required a determination of when the non-breaching
party became aware of the breach. Damages are to be calculated at
the time the party became aware of the breach, not some abstract
The Second Circuit's decisions in Lucente and Oscar Gruss
plainly supports the Court's decision to exclude evidence
subsequent to the date of breach. In Oscar Gruss, for example,
the Second Circuit applied the firmly rooted law that breach of
contract damages must be calculated from the time of the alleged
breach and not, as Boyce suggests, with 20/20 hindsight from some
future date. As in Oscar Gruss, Boyce learned of Soundview's
breach immediately upon Soundview's refusal to exercise Boyce's
options, and damages must be measured from that moment. Id. at
197. Any evidence as to the length of time Boyce intended, or
might have intended, to hold the shares of Wit stock is simply
beside the point. Id. at 198.
2. Mr. Antoon's Testimony
Boyce also argues that the Court's evidentiary rulings
prevented Boyce from putting his own valuation expert, Mr. Antoon
("Antoon"), on the stand Boyce contends that Antoon's report,
based on a forward-looking approach and documents, was
incorrectly excluded by the Court.
At the Daubert hearing preceding trial, the Court limited the
scope of Boyce's expert witness testimony because of the expert's reliance on events occurring
after April 5, 1999. Rather than relying on the facts as they
were understood at the time of the breach, Antoon impermissibly
relied upon "the IPO price" to establish a basis for assessing
the value of Wit's stock. (Jul. 19, 2004 Trial Tr. 14:3-12). Such
a damage assessment would have, once again, impermissibly
consisted of hindsight evidence. (Jul. 19, 2004 Trial Tr. 15:10
23; 17:14 19). Antoon's expert testimony was correctly
3. Post Breach Registration Statements
Finally, Boyce argues that the Court improperly excluded Wit's
post-breach Registration Statements. Boyce maintains that the
Court's decision to deny any portions of Registration Statements
into evidence and, instead, permit Boyce to argue the
significance of the figures contained therein only in summation
was both prejudicial and incorrect.
As discussed above, Lucente and Oscar Gruss require the
exclusion of evidence reflecting the post-breach value of Wit
stock. The Registration Statements are typical of such evidence.
Boyce's motion for a new trial based upon the Court's preclusion
of evidence and testimony dated after April 5, 1999 is,
therefore, denied because Boyce fails to demonstrate a "seriously
erroneous result" or a verdict that "is a miscarriage of
justice." Munafo, 2004 WL 1878753, at *5.
For the foregoing reasons, the Plaintiff's motion for a new
trial, pursuant to Fed.R. Civ. P. 59, limited to the issues of
damages is denied for failure to demonstrate a "seriously
erroneous result" or a verdict that "is a miscarriage of
justice." Munafo, 2004 WL 1878753, at *5.
The Clerk of the Court is requested to close this motion and
any remaining motions, and remove this case from my docket.
IT IS SO ORDERED.